Although China’s offshore yuan strengthen past 7 per $USD on expectation that phase one of the trade deal will be signed soon, we still see the yuan remaining vulnerable to further weakness as discussions between U.S. and China drag on.
Given the history of previous trade agreement setbacks, continued weakness in China?s economy given we expect GDP slowing to 5.5% in 2020, and the probability that the PBOC loosening monetary policy in order to weaken its currency, we expect the yuan to weaken to 7.4 within the next three to six months.
Until a phase one trade deal is reached along with an agreed timetable of tariff rollbacks, we expect the yuan to trade within a narrow range between 7.0 and 7.3 against the U.S. dollar. A weaker yuan makes China’s exports cheaper and helps offset the impact of U.S. tariffs on Chinese-made goods.
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